When compared to the regular economy, bitcoin’s macroeconomic figures are vastly more accessible and reliable: all bitcoin transactions are publicly registered as to quantity and time, and that’s a standard that the U.S. dollar can’t hope to meet. In bitcoin, all your transactions are anonymous, but they’re also made in public. And that lets us do a good deal of macroeconomic analysis without the hedging that it usually requires.

My first graph shows the daily number of bitcoin transactions per U.S. dollar of bitcoin’s total market capitalization:

This chart shows a dramatic reduction in the total number of transactions, irrespective of size, per dollar of bitcoin’s market cap, from December 2012 – December 2013. In absolute terms, market cap has generally gone up, and the number of transactions has mostly just bounced around a lot. The total value of bitcoin is going up, but it’s mostly getting parked rather than being put to work. Apparently there just aren’t a lot of appealing ways to spend bitcoin, anecdotal news stories to the contrary notwithstanding.

Instead, an increasing amount of bitcoin’s putative value (as measured in USD) is being squirreled away by larger and larger miner-investors. It’s not fueling a diversifying, all-bitcoin economy: if it were, transactions would be keeping up with or even outpacing market cap, particularly if bitcoiners came to rely increasingly on bitcoins and decreasingly on dollars for day-to-day purchases. That’s very clearly not happening.

Instead, people are mining additional bitcoin, and speculators are buying in – and thus both of them are growing bitcoin’s notional market cap – but these folks simply aren’t adding all that much to the number of daily transactions. Even a bitcoin mining pool would only disburse its proceeds once, and if the individuals in the pool mostly just held their bitcoin, you’d get a graph a lot like the one above.

This is not a growing economy. It’s a hope for a growing economy — despite strong evidence to the contrary. And there’s a word for that.

My second graph shows the daily total transaction value of the bitcoin economy, denominated in U.S. dollars, divided by the total market capitalization of the bitcoin economy on that day, again denominated in U.S. dollars:

This is an attempt to look at the velocity of bitcoin. The velocity of money is an important number in macroeconomics, at least in the real world. Allowing for some expected (and expectedly large) daily fluctuations, the velocity of the bitcoin economy has stayed fairly stable. It doesn’t seem to be trending upward or downward over the last year.

But how fast is the bitcoin economy, really, and how does it compare to the U.S. dollar?

In the standard procedure for finding the velocity of money, we take the total transaction value for the time period and divide it by the average amount of money in circulation.

Deep breath: The average number of bitcoins in circulation during the year was 11,275,182. And the total value of bitcoin transactions, denominated in bitcoin, was 76,390,490. Using figures given in bitcoin, the velocity of money was thus 6.775.

But there are at least couple of very serious methodological problems here.

First, whether we like it or not, we need to reckon the velocity of the bitcoin economy in U.S. dollars and not in bitcoins. That’s because a great deal of evidence suggests that bitcoin is being used as a method of payment, but not as a unit of account.

So we need to recalculate: Bitcoin’s dollar-denominated total transaction value for the year was $13,029,440,205.00. And bitcoin’s dollar-denominated average market capitalization for the year was $1,866,267,446.79. That yields a velocity of 6.98.

That’s again very close to the estimated velocity of money of the U.S. dollar.

But now we come to the second methodological difficulty: The above similarities are probably an illusion. The entire bitcoin money supply consists of something a lot like M1-type money: that is, it’s essentially all either circulating cash or (effectively) demand deposits, like checking accounts. But the entire dollar money supply is much larger, and those other parts have their own velocities and particular properties, complicating the picture in ways that I don’t quite feel anyone should speculate on. Bitcoin has security and privacy features that differ from M1, and bitcoin M2 will be another creature entirely, if and when it exists.

The key here is that nothing seems to be happening all that dramatically in bitcoin’s velocity of money over time. It’s not circulating more rapidly over time, which is what one should expect if it were taking off as a currency, and if more and more transactions were of the form of people passing bitcoins around for stuff. Instead, most transactions (that is, most that don’t go dollar-to-bitcoin-and-then-stop) are likely to be money-to-bitcoin-to-stuff, after which the merchant reverts to the dollar as soon as possible. If the bitcoin economy were becoming independent, we might expect a takeoff in the velocity of money, but we’re definitely not seeing it yet.

And now we’re ready for the third graph, which is the real smoking gun. The blue line is the average value of all bitcoin transactions for the day, in dollars. The orange line is the dollar-denominated price of one bitcoin multiplied by five:

The conclusion is clear: the mode bitcoin transaction likely consists of a fairly rich American using disposable wealth to buy an arbitrarily chosen quantity of bitcoin for speculative purposes.

“I’d like to get me some bitcoin. And I think… oh… maybe five of them will do. Now — how much do they cost again?”

How much does bitcoin cost? These folks don’t even care – they just want some. Thus we can conclude:

The mode bitcoin is probably mined, disbursed, and never goes anywhere thereafter. The mode transaction is someone buying an arbitrarily chosen amount of bitcoin and then sitting on it forever. Consumers using bitcoin to buy stuff (other than dollars) appear to be few and far between. Bitcoins circulating without immediate reconversion to the dollar are likely very few. And all of this has been true for at least a year.

This trend cannot continue, because disposable income – and enthusiasm for a fad – are both finite. The value of one bitcoin can continue to explain bitcoin’s average transaction value for only so long, and situations in which current face values of an asset determine how much people will buy are not just evidence of a speculative bubble. They are the very definition of a speculative bubble.

My work is available on request, and I will be happy to take questions. I am an economics autodidact, and I freely admit that macro isn’t my strong suit. As a result, I’ve probably made some mistakes, and I welcome corrections. Lastly, I have to say that all of this seems clearly true to me — so far. Tomorrow could easily prove me wrong, but I’m pretty sure it would need new data to do so.

Update: Commenter Nick asked for an x y scatterplot of the correlation between bitcoin’s price and the average daily size of bitcoin transactions. That’s a fair request, and here it is, with logarithmic scales on both axes to preserve the movements at the lower price ranges. The correlation coefficient is .92, which is pretty darn high:

I am a firm believer in the quantity theory as regards things that fully function as money. But right now, bitcoin isn’t one of them.

Currently bitcoin is a means of payment, but it’s not a unit of account. Other things just aren’t denominated in bitcoin, except insofar as they’re also denominated in U.S. dollars, with a floating bitcoin price. So inflation in bitcoin is meaningless — for now.

Worse, the size of the bitcoin economy relative to the national economy is both tiny and very highly flexible. Entry and exit from the bitcoin economy are very easy. As a result, the change in the quantity of bitcoin says precisely nothing about the change in bitcoin-denominated prices. The theory is good where it works, but bitcoin isn’t one of those places.Report

Bitcoin suffers from a deep structural flaw that will likely prevent it from ever becoming an everyday transactional currency in it’s current form. All the Bitcoin servers have to be updated and verified for every Bitcoin transaction. So it can take several minutes for a transaction to clear. That’s fine for a brokerage account transaction, but who the hell is going to put up with that in the checkout line at Target? (And if you just raised your hand imagine being the people behind that guy.)

What you would need would be some outfit like the Visa/MasterCard network to approve the transaction and then clear it after the fact. But that requires reversability and then you’ve lost your anonymity.

I agree this is a problem, but I think it’s likely a fixable problem. A processing company could easily sell speed for transaction fees while maintaining anonymity. They’d have to bank up some reserves to make it work, but it’s on paper viable at least.Report

Apples to oranges. It take an hour for a Bitcoin transaction to completely clear to the point of irreversibility. When you look at that same figure for other payment modes (wire transfers, checks, credit cards), it’s pretty fast. People usually don’t need to wait for that threshold, and when they do, Bitcoin is faster.Report

But “clearing to irreversability” isn’t even a thing for those other modes of payment. The window for unwinding a transaction is indefinite when the meatspace identities of the participants are known.

Bitcoin purports to be the digital equivalent of walking into a store with cash and buying something, and being able to do so anonymously. Totally different paradigm.

I can say this much. If I owned a retail store you wouldn’t be walking out of there until I knew beyond a shadow of a doubt that your coin was legit. And that’s about ten minutes on average. Online is different since I can easily hold off on shipping until it clears.Report

I was referring to *technical* reversibility; obviously, conventional mechanisms have the possibility of *legal* reversibility, to the extent that you can find the person and the money at all.

The credit cards you mention leave you open to the possibility of chargebacks within ~45 days, and yet you don’t make customers stay in the store that long!

So that I’m not confused with many advocates, let me say that I don’t think the possibility of chargebacks is always bad; me point was just that on an apples-to-apples basis, bitcoin isn’t much different, and often much better, than conventional payment mechanisms.

In cases of weakened trust between the parties, you do need to layer a protocol on top of the (technically-irreversible) exchange in order to re-establish trust, but this is no different from how it works with cash.Report

1. The whole point, or at least one of the points, behind Bitcoin is that it purports to be the digital equivalent of cash. Agree or disagree?

2. In reference to #1, it’s not much difference in use as one of those anonymous, pre-paid debit cards you can buy at a convenience store. Agree?

Now, imagine if you will, that when you swiped that pre-paid card at the gas station, instead of the “Approved” or “Declined” coming back in seconds it took up to an hour for that code to come back. If I’m running a retail establishment with cashiers serving a line of customers I guarantee you it won’t take long for me to decide to post a sign saying “No Pre-paid Debit Cards Accepted.” I’m just not going to be interested in fooling with it.

I’m not saying it isn’t a solvable problem, but that solution is going to involve a third-party processor willing to assume that risk. And I don’t see any way around that involving either loss of anonymity to that processor or very substantial transaction fees or likely both, since for the foreseeable future that transaction also involves conversion between the national currency and the highly volatile Bitcoin.Report

True that. But I’m just exploring why Bitcoin hasn’t taken off as a transactional currency. I’ve been doing some reading today and the typical use case appears to be offshore gambling at 50%, followed closely by child porn, various aspects of the drug trade, gun sales, and cross-border transfers. Basically black and grey market stuff.

It has to break out of it’s current paradigm and become suitable for purchasing gas and groceries if it’s to survive, much less thrive. Because here’s what’s going to happen. It’s going to attract increasing and not positive attention from governments. It’s going to get regulated in such a way that anonymity goes out the window. At that point it’s useless as a black currency and has to compete toe-to-toe against dollars and euros and yen and yuan and all the rest. And that’s something it can’t do in it’s current form.Report

No, since the latter two are pure matters of opinion (in practice), and also attacks on their targets.

“Bitcoin is/is not money”, in the economic sense of money is something we can actually determine.

Is it being used as money – a medium of exchange whose vastly predominant or only value is as a medium of exchange? And is it usable for all or almost all exchanges one might want?

I think it mostly meets the former – it certainly has no intrinsic value, so it isn’t a commodity, and its entire point is that it can be exchanged.

But the latter? You can’t hardly buy anything with a bitcoin now, and its only value in exchange boils down to “it can be exchanged for a currency you can spend“.

I’d say it’s a token for actual money, not money itself, just yet – plus it’s subject to a speculative issue, as mentioned above, because the token value isn’t clear and stable yet.

(Not a token in the sense of “token money” vs. “fiat money” or “commodity money”, but parallel, where it’s a token for the fiat money itself, on the grounds that that’s the only kind anyone has anymore.

Could it eventually be money, in itself? Certainly; the only feature of a money that it lacks now is general acceptance. It’s fungible, divisible, and can be exchanged.

Is it money now? Doesn’t seem to be – precisely because it lacks general acceptance.

Contra jr below, cows and other livestock were a medium of wealth, but they don’t meet the economic criteria for being “a money”. You can’t give someone half a cow [not “half a cow worth of meat”, which is different!], and cows don’t store well, and indeed cows aren’t quite fungible.

situations in which current face values of an asset determine how much people will buy are not just evidence of a speculative bubble

Isn’t this true of all money? The current value of the $US determines how much of it people are willing to buy. Same as with any free floating fiat currency. Also, since currency is almost always some durable good that has little in the way of any other use, the difference between the value of said good if it were not a currency and its value when it is, is entirely made up by speculation.Report

Trade has a much bigger impact than speculation. The USD is an odd example because there are lots of financial instruments that people like to buy that are priced in dollars. But let’s use a less common currency for a country with a dominant industry, like the Bangladeshi taka. People outside Bangladesh will buy the amount they need to buy the requisite amount of textiles. Will the strength of the taka have an effect on how much is needed? Yes. But it is definitely not the primary driver of taka purchases. Foreigners buy taka to buy and sell tshirts, people buy bitcoins to buy and sell bitcoins.Report

The current market price of a dollar, in other currencies, does float. But the demand for dollars is clearly the result of people wanting to do things with them besides just holding them. Typically they want to spend them — to buy products whose prices are denominated in dollars. What I’ve done here is to show that people buying bitcoins appear to be buying an arbitrary amount and holding, not spending.

When people buy to hold an asset based solely on its market price, that’s a speculative bubble.Report

“When people buy to hold an asset based solely on its market price, that’s a speculative bubble.”

I agree. (To be picky, I would add that it is only a bubble if the price is rising, which causes people to want to pay more and expect even higher prices. It wouldn’t be a bubble if people bought bit coins like low-yield bonds, i.e. just to store cash with no expectation of long term earnings.)

Of course, there are some speculative bubbles that never seem to pop: high end art seems to be one.

And aren’t term bonds, with very low interest rates, similar in that they can’t be used (until they mature) to purchase anything. (And bitcoins can be sold for cash, just like long term bonds). Obviously bitcoins don’t pay interest, but their draw might be related to inflation or whatever.Report

I’d not say it’s proof of a bubble, if just because I don’t think you can ever prove that something is a bubble. What you can definitely say is that people are not using it as money, but as a commodity that is relatively non-perishable. Since people are not buying it because of how useful it is, then sure, we can also say that the reason they buy it is speculative. But with speculation, you never know if the reason it’s being held is just to sell it off later as people just keep bringing the price up until it collapses, of if it is because people see potential for Bitcoin to be actually valuable in the future, and the price increase just means that people are guessing that yes, it will be valuable, so a price increase is warranted.

Now, I personally believe that the market will clear out to pretty much zero, but the fact that people make wrong guesses doesn’t mean it’s a bubble. Imagine a special kind of lottery, where numbers are handed out, and instead of selecting a winner, the people organizing the lottery kept naming some numbers as losers, until at the end, there is only one number, which wins. Lottery tickets would then increase in value over time, until at the very end, one ticket is the winner, and is worth some millions, but the rest are worth zero. If I bought a ticket when there’s only 10 good numbers left, I’d rationally be paying a ton of money compared to an original owner that bought it when there were hundreds of thousands of numbers available. The price went up, but that would not mean there was a bubble on some numbers that eventually lost, does it?Report

Bob, This ain’t silver. Bitcoins have no inherent value. Therefore, considering them as a commodity and not money is a sleight of hand. They occupy something in the interim between the two. Their worth is based mostly on who the greatest fool is (as is gold, for what it’s worth. the actual need for gold is relatively minimal).Report

Jason, first, thanks for doing this. Good christ, why isn’t it a reporter?

But there’s not nowhere near enough game theory here. You aren’t looking at BTC the guys who run this thing…. you are imagining scam artists, Ponzi, not Zuckerberg and Bezos.

Bitcoin isn’t a oddball trade investment. Not like bulbs.

Your data says clearly members of the HEGEMONY sensing that there might be a long term game changer – are putting their first foot forward and buying 5 coins – $2500, $3500, $5000 who knows? who cares, it could be what??? … if it topples the global currency market you will own 5 / 21,000,000 of all the money!

Of course not really, along the way to that nirvana there would be crisis, and soar, crisis, and soar, as different kinds of people, with different levels of risk tolerance and fortunes, got out of their 5 coins, or got more comfy and buy more, etc.

NOW put yourself in the minds of the guys running this start up 9they themselves are locked in another game amongst themselves) – they are as smart as you, they are recognizing the ONLY way for them to become global overlords is to what?

Make sure the guys each buying 5 coins, don’t lose interest, don’t stop believing. And remember, there’s a LOT of folks who live comfy in the top 5% of the global hegemony.

So what would you do if you were the the loose collective of guys sitting on future fortunes?

Is the only answer increase velocity? Is it really about medium of account?

You do want there to be enough volume on the buy side, you gotta keep the guys with throw away $5K money trusting, have you seen that tested?

What else do you do? Think like a start up guy with designs on world domination…Report

I don’t actually imagine — much less do I theoretically require — a Ponzi scheme here. When real-world financial bubbles burst, many of the existing Ponzi schemes get revealed, but they aren’t the agents driving the financial bubble. Even Bernie Madoff, the largest Ponzi schemer in history, didn’t drive the bubble last time (total theft: $18 billion). The real engine of disaster was the subprime crisis (total losses: several trillion worldwide); it had the side effect of revealing what Madoff was up to, but Madoff was very much not in charge of the thing.

The hegemons of course don’t want to see the bubble collapse, because with it would go their paper profits. But — game theory! — they face an insoluble coordination problem. Once one of them decides to start liquidating, the party will soon be over for all of them.Report

Say you are Satoshi, what is the effect you funding a BTC lottery? What if you start paying people in BTC to work for you, paying them over the wages they make today, but leaking part of what they earn over time? What kind of people would you hire who would be most likely to buy other stuff with BTC?Report

You forgot to mention in your article how BTC is readily and directly convertible into a variety of other cyrpto-currencies as well as traditional currencies, thanks to service providers online. That throws your analysis out the window, IMO.

The US dollar is not so easily converted into other currencies and it is loaded with $17 trillion in debt, plus another expected $80 trillion over the next 20 years. BTC is the new safe haven. Gold prices are actively repressed by the Financial Stability Board of the BIS as well as the PPT over at the US Federal Reserve, which means gold will never be a safe haven.

You also forgot to mention how the World Bank and IMF created vision documents for a currency similar to BTC, about 15 years ago. BTC is their creation, IMO. Social engineering ensures you will never know this fact directly.Report

> The US Dollar can be effortlessly converted into practically any currency that exists.

Word. During my trip to the US I received crisp american dollars from an ATM machine using my South African bank issued (i.e. Rand based) credit card, and at a very reasonable exchange rate at that – much better than brick and mortar currency exchange outlets.

I’m sure the same courtesy will be available to any American tourist visiting SA, you can pay for almost anything with your US bank issued credit card these days, and currency exchange will be done automatically and instantly.Report

Jason> Deep breath: The average number of bitcoins in circulation during the year was 11,275,182.

That graph is misleading. There is a lot of “dead” bitcoins lying around, for one simple reason – people who mined them in the early stages lost or forgot their passcode/key, so ultimately the superiour security of Bitcoin is simultaneously it’s biggest downfall. Once your “wallet” is gone, it really is gone forever and there is no way of getting it back.

One guy on Reddit bitcoin sub did some kind of blockinfo search and discovered that there are well in excess of 20,000 wallets with exactly 50 bitcoins in them – most of these wallets have not been touched since 2010. Which most likely means that they belong to early adopters who mined 50 btc (exact mining block size at the time) and then lost them due to forgot password/lost hard drive, etc. That’s well over 1 mln BTC gone, forever. Satoshi, the founder of bitcoin, reportedly owns 980K btc, he has not been seen or heard from since 2010.

Bottom line is, at least 2 mln BTC, as I strongly suspect, are “dead money” and will never be recovered or transacted.Report

You haven’t disproven, or even contradicted, anything I’ve been saying. When some money has a velocity of zero, that gets averaged in along with the rest. As it should. That’s the point of measuring money’s velocity. It’s an average.Report

How does Bitcoin ‘rot’ affect the analysis? If I lose my wallet with 25 BTC in it, then that is [21 M less 25] BTC in the world, forever. Repeat that 840,000 times and the currency vanishes altogether.

If I run my wallet through the wash, M0 for dollars goes down very (very) slightly, but the Fed is always generating many more dollars. This is not really true for BTC.Report

Gary North has several articles on Bitcoins, and he’s pretty much coinvinced me of the same. He also takes shots at whether or not they are really money and whether they ever be actually adopted widely.

At present, we know what bitcoin is: a speculative bet on the viability of an alternate currency. We do not, however, no what bitcoin will become.

In other words, the ultimate value of one bitcoin might be $1,000. It might also be $0 or $1 million. My guess is closer to zero, but it’s just a guess.

The deflationary nature of bitcoin likely makes it a poor currency, but it would be damn interesting as an experiment in decentralized monetary policy. Bitcoin may also have a future as a payment system, but that’s largely going to be dependent on how governments react to it.Report

I always liked the saying, “When the guy shining shoes in the airport has a really hot investment tip for you, you can be pretty sure you’re in a bubble situation.” Once “everybody knows” it’s a good way to make money, it’s probably long past the time when it was a good way to make money.Report

“The mode transaction is someone buying an arbitrarily chosen amount of [art] and then sitting on it forever. Consumers using [art] to buy stuff (other than dollars) appear to be few and far between. [Art] circulating without immediate reconversion to the dollar are likely very few. And all of this has been true for at least [as long as art has existed].”

This trend cannot continue, because disposable income – and enthusiasm for a fad – are both finite. The value of one [art piece] can continue to explain [art’s] average transaction value for only so long, and situations in which current face values of an asset determine how much people will buy are not just evidence of a speculative bubble. They are the very definition of a speculative bubble.Report

I’m trying to make the point that if it’s only speculation, then it isn’t value. That’s why the first graph matters — it shows more and more value locking into a holding pattern, rather than circulating as it ought to do in an economy.Report

You’re locked into the dangerous paradigm that bitcoin must derive its value from its use as a medium of exchange.

What other possible value could it have? You cannot use a bitcoin to create something, nor eat it, nor use it to solve problems.

Not to discount the high value of mediums of exchange, but bitcoins are purely virtual assets. I suppose one could collect them, like art or something, but I somehow feel the actual market in that sense is so tiny as to be non-existant.Report

Sorry, I was imprecise, thanks for helping me be more clear. I should have said: unfounded paradigms can be dangerous when acted upon. What is particularly dangerous in this case is the author purporting to prove something without acknowledging, appearing to be aware of, nor critically examining his assumptions. A less dangerous blog title might have been: “Do these graphs suggest bitcoin is in a speculative bubble?”Report

Americans bubble gold (and to a lesser extent silver). The extent to which Indians hold gold and silver is more “increased demand.” (in short, there are both bubbly reasons and non-bubbly reasons for gold and silver to be increasing in price).Report

Third thought: The variation between dollar and yuan is vastly smaller than the variation between either and bitcoin. What I say about dollars may still hold true even if yuan is a larger share of the market cap. Or it may be even more true. I need to look this up….

Fourth thought: Guests are at the door, can’t look into it further right now…Report

Looking at it this morning, I see that bitcoincharts.com is an opt-in service, and that many of the big names in U.S. bitcoin trading aren’t included. It’s an incomplete data set. It’s an interesting possibility, but we need better information to follow it up.Report

I’m not trying to prove anything here, just trying to open your mind to possibilities other than US citizens wanting to transact in BTC are the driver of BTC’s value. Also, out of curiosity, which big names in US bitcoin trading are not on bitcoincharts?Report

Money is a proxy for trade—a proxy made formerly of metals with intrinsic value, then metal-backed paper with little intrinsic value and now electronically transacted with no intrinsic value—it facilitates trade by allowing for more transactors to get a fair and mutually beneficial value for their wares.

Trade has increased because we have more to trade, so money also needs to increase to prevent hoarding, the antithesis of trade and destroyer of wealth—both for real and on paper. This is why handling the velocity of money is important. This is why the metal-backed currencies had to be broken when real wealth—a.k.a. options to spend and make time—exploded. This is also why BTC will likely always be a hoarder currency.

Now then the question—will BTC suddenly lose its value? If BTC is purchased and not spent and the demand for it as a safe haven continues—the sky is the limit*, no matter the amount of actual transactions for goods instead of currencies. But while this hoarding will contribute to savings, it won’t contribute to real wealth creation until it’s traded. And since it will likely never be a main currency, its volatility will likely continue, which can lead to the sudden popping of the bubble if everybody starts to treat it like a crazy game of hot potato. A sudden devaluation would spur many to “lock in” profits and few willing to trade for BTC over a suddenly appreciating and relatively stable currency in regard to actual trade.

Which brings me to the other question—is this the top? The S&P 500 in 1998 and 2004 seemed like they were tops. They were both speculative bubbles. This is also a speculative bubble, but how much value is there in an anonymous, government-free currency? It is more than possible that as a savings instrument, it will continue to rise.

My guess, next year it will be 10000 or 10 USD/BTC. It’d probably be wise to buy a straddle.

*if you subscribe to a Kurzweilian view of the future, not even the sky will hold it down.Report

Actually, the fact that it is anonymous means that you can hide money there, so as an investment vehicle, it may be better than a Cayman account, which may lend itself toward some semblance of stability while cementing it as a financial savings/hoarding instrument. So if I may fix your statement:

This article is distorted. From Jan 1 to today transaction volume increased by 209%, Market Cap by 7815% and total value of transaction by 3738%. (charts & data) This indicates “hoarding” is happening more than “use” but this is not exactly a bad thing, at least no more so than governments increasing stock piles of gold. Hoarding is not a bad thing so long as utility remains. And it has, by %3738 and growing (see charts at link). If we apply the meaning of “transaction” as you do, as a measure for utility and velocity, this would indicate a dramatic increase of use for goods and services.Report

Earnest question: why is it that economic discussions of BitCoin fail to consider its role as a black market currency? Surely the fact that BitCoin is the go-to currency for mail order illicit goods should be considered in metrics of its use.Report

This may be a good backward looking view but necessarily a good forward looking analysis. There is much that hasn’t happened that could change much of bitcoins state. This includes institutional money, continued fiscal geopolitical instability and POS interfaces that make B2b and B2c trade in bitcoins very real ESP in hyper inflationary economiesReport

This article is great for people who’ve not got any Bitcoins to feel better about themselves. Other than that it misses some pretty key points, and in some places is frankly misleading.

1. The number of transactions for practical use IS going up. About 300% this year. The top graph is misleading, as is the second… Comparing transactions to market capitalization in dollars, in a year where the value of BTC (in dollars) has gone through the roof, effectively provides an inverse of the price in dollars, but does little to prove or disprove use for practical transactions. Your graph makes it appear as if the number of transactions is going down, when this is factually not the case.

2. You say that the number of transactions have “mostly just bounced around”. This is simply not correct, assuming you are trying to establish its real world practical use for transactions. Understand that Bitcoin exchanges have to move substantial BTC between accounts (addresses) daily, for example in and out of cold storage. (This is akin to putting money in and out of a safe, but generates transactions on the public record all the same). Consequently, this graph taken from the same source as your charts, and showing the number of Bitcoin transactions while excluding transactions between popular addresses, is the most accurate view of practical use. Growth of 300% in a year is not bad and is certainly not ‘bouncing around’!

3. It’s usefulness for in person transactions such as at a physical store is, as many commenters say correctly, constrained by the 5-8 mins it takes to confirm a transaction, but this is not where the currency shines (and in fact is being solved anyway). This is old world thinking here… i.e. a dollar can be used in any circumstance – online, physical store, wire transfer. On the contrary, Bitcoin as a currency simply ‘has its place’. It works fine for online orders (I ordered a computer a couple of days ago and paid fine with Bitcoin), it also works great for wire style transfers between individuals and businesses, and in both cases has (effectively) zero transaction fees – in stark contrast to credit cards and regular wire transfers. Think of it this way… an online merchant could sell its products 2-3% cheaper tomorrow than its competitors, assuming it offers Bitcoin as a means of payment. Imagine if Amazon announced it was accepting Bitcoin next week… Would that change your view of Bitcoin being (not) a currency?

The simple fact is there are only a tiny number of places to spend Bitcoin at the moment, but that number is growing. It will accelerate in 2014 as API’s for online merchants mature, so that merchants can readily integrate Bitcoin into their shopping carts, which is not easy right now. Bitpay is one example of a company offering this service.

It is certainly true that a large number of people are hoarding and many are hoarding for speculation purposes. But I agree with the commenter who says that many are also waiting simply for the opportunity to spend it.

Oh sure, all the time. And maybe this is an overly picky issue, but in the above comment Morgan suggested that if you thought you had proof that bitcoin was a speculative bubble, you’d act on that evidence. He might be reading too much – as I am – into the phrase “Bitcoin is a speculative bubble, and I have the graphs to prove it.” That’s all.Report

My position is that right now, the data says “speculative bubble.” Very clearly.

Now, something might come along and justify the speculation, but here we are four years into the existence of the bitcoin protocol, and it hasn’t happened yet. That’s why I wrote in the original post, “Tomorrow could easily prove me wrong, but I’m pretty sure it would need new data to do so.”

If that new data comes along, I shall humbly revise. But not until.Report

It’s not easy, and that’s also part of the problem. I’ve seen made available a very short-term put option, but no long-term puts, and nothing that effectively offers to the public the chance to make a short sale. It would have to be arranged privately between the parties, hence some significant transaction costs.Report

morat, Shorts are called that for a reason. They shake money out of you the longer you hold the position.

It’s EASY to call a bubble (The Fed’s starting to look for one in housing again. Yay active Fed). It’s HARD to call the timing of a popped bubble.

Your friend would have made more money shorting President Bush (assuming he was a day trader–which he probably wasn’t. Bush was unpredictable enough about showing up on air that you couldn’t make the longer trades based on him).Report

Not my friend. Just read about him. Guy’s a billionare now, lives out in California. He started trying to short CDO’s before there were any financials ways to do so, and when he finally could it was some obscure “effectively a short” thing involving third and fourth parties.

All I recall is (1) the difficulty he had shorting CDOs and the shadow market in them and (2) the fact that he was up to his eyeballs in debt (something to do with keeping the shorts going? I dunno) when the market finally collapsed and he went from basically dead broke to, well, billionaire.Report

Firstly because of the near parabolic price increase. Why use something today that is worth double tomorrow. Speculators are both bad and good for BTC. Without speculators, the bubbles wouldn’t happen and btc wouldn’t be in the mass media. However in the short term, speculation hinders retailers directly (not using bitpay) adopting BTC because of the volatility.

Secondly because there are only limited number of shops accepting it and the middle man services are a hassle. It’s much easier to speculate on BTC than to spend it.

It’s the second chicken egg problem, the first was why would anyone “use” a virtual currency if nobody else is “using” it… that one is pretty much solved.

The problem now is that for the price to have any resemblance of stability, circulation needs to skyrocket. Why would anyone circulate their BTC if the price could soar tomorrow?

You’re trying to prove something that we all agree with buddy. Bitcoin is speculative. Investors are speculating that in the future it will take off as a currency. No intelligent person would disagree with your thesis.Report

Religious Institutions. Religious institutions may resume services subject to the following conditions, which apply to churches, synagogues, temples, mosques, interfaith centers, and any other space, including rented space, where religious or faith gatherings are held: 1. Indoor religious gatherings are limited to no more than ten people. 2. Outdoor religious gatherings of up to 250 people are allowed. Outdoor services may be held on any outdoor space the religious institution owns, rents, or reserves for use. 3. All attendees at either indoor or outdoor services must maintain appropriate social distancing of six feet and wear face masks or facial coverings at all times. 4. There shall be no consumption of food or beverage of any kind before, during, or after religious services, including food or beverage that would typically be consumed as part of a religious service. 5. Collection plates or receptacles may not be passed to or between attendees. 6. There should be no hand shaking or other physical contact between congregants before, during, or after religious services. Attendees shall not congregate with other attendees on the property where religious services are being held before or after services. Family members or those who live in the same household or who attend a service together in the same vehicle may be closer than six feet apart but shall remain at least six feet apart from any other persons or family groups. 7. Singing is permitted, but not recommended. If singing takes place, only the choir or religious leaders may sing. Any person singing without a mask or facial covering must maintain a 12-foot distance from other persons, including religious leaders, other singers, or the congregation. 8. Outdoor or drive-in services may be conducted with attendees remaining in their vehicles. If utilizing parking lots for either holding for religious services or for parking for services held elsewhere on the premises, religious institutions shall ensure there is adequate parking available. 9. All high touch areas, (including benches, chairs, etc.) must be cleaned and decontaminated after every service. 10. Religious institutions are encouraged to follow the guidelines issued by Governor Hogan.

“There shall be no consumption of food or beverage of any kind before, during, or after religious services, including food or beverage that would typically be consumed as part of a religious service,” the order says in a section delineating norms and restrictions on religious services.

The consumption of the consecrated species at Mass, at least by the celebrant, is an integral part of the Eucharistic rite. Rules prohibiting even the celebrating priest from receiving the Eucharist would ban the licit celebration of Mass by any priest.

CNA asked the Howard County public affairs office to comment on how the rule aligns with First Amendment religious freedom and free exercise rights.

Howard County spokesman Scott Peterson told CNA in a statement that "Howard County has not fully implemented Phase 1 of Reopening. We continue to do an incremental rollout based on health and safety guidelines, analysis of data and metrics specific to Howard County and in consultation with our local Health Department."

"With this said," Peterson added, "we continue to get stakeholder feedback in order to fully reopen to Phase 1."

The executive order also limits attendance at indoor worship spaces to 10 people or fewer, limits outdoor services to 250 socially-distanced people wearing masks, forbids the passing of collection plates, and bans handshakes and physical contact between worshippers.

In contrast to the 10-person limit for churches, establishments listed in the order that do not host religious services are permitted to operate at 50% capacity.

In the early days of the Coronavirus epidemic, there were hopes that the disease could be treated with a compound called hydroxychloroquine (HCQ). HCQ is a long-established inexpensive medicine that is widely used to treat malaria. It also has uses for treating rheumatoid arthritis and lupus. There had been some indications that HCQ could treat SARS virus infections by attacking the spike proteins that coronaviruses use to latch onto cells and inject their genetic material. Initial small-scale studies of the drug on COVID-19 patients indicated some positive effect (in combination with the antibiotic azithromycin). President Trump, in March, promoted HCQ as a game-changer and is apparently taking it as a prophylaxis after potentially being exposed by White House staff.

Initial claims of the efficacy of this therapy were a perfect illustration of why we base decisions on scientific studies and not anecdotes. By late March, Twitter was filled with stories of "my cousin's mother's former roommate was on death's door and took this therapy and miraculously recovered". But such stories, even assuming they are true, mean nothing. With COVID-19, we know that seriously ill people reach an inflection point where they either recover or die. If they died while taking the HCQ regimen, we don't hear from them because...they died. And if they recover without taking it, we don't hear from them because...they didn't take it. Our simian brains have evolved to think that correlation is causation. But it isn't. If I sacrificed a goat in every COVID-19 patient's room, some of them would recover just by chance. That doesn't mean we should start a massive holocaust of caprines.

However, even putting aside anecdotes, there were good reasons to believe the HCQ regimen might work. And given the seriousness of this disease and the desperation of those trying to save lives, it's understandable that doctors began using it for critically ill patients and scientists began researching its efficacy.

Why Trump became fixated on it is equally understandable. Trump has been looking for a quick fix to this crisis since Day One. Denial failed. Closing off (some) travel to China failed. A vaccine is months if not years away. So HCQ offered him what he wanted -- a way to fix this problem without the hard work, tough choices and sacrifice of stay-at-home orders, masks, isolation and quarantine. So eager were they to adopt the quick fix, the Administration made plans to distribute millions of doses of this unproven drug in lieu of taking more concrete steps to address the crisis.[efn_note]Although the claim that Trump stands to profit off HCQ sales does not appear to hold much water.[/efn_note]

This is also why certain fringe corners of the internet became fixated on it. There has arisen a subset of the COVID Truthers that I'm calling HCQ Truthers: people who believe that HCQ isn't just something that may save some lives but is, in fact, a miracle cure that it's only being held back so that...well, take your pick. So that Democrats can wreck the economy. So that Bill Gates can inject us with tracking devices. So that we can clear off the Social Security rolls. And this isn't just a US phenomenon nor is it all about Trump. Overseas friends tell me that COVID trutherism in general and HCQ trutherism in particular have arisen all over the Western World.

It's no accident that the HCQ Truthers seem to share a great deal of headspace with the anti-Vaxxers. It fills the same needs

In both cases, the idea was started by flawed studies. The initial studies out of China and France that indicated HCQ worked were heavily criticized for methodological errors (although note that neither claimed it was a miracle cure). Since then, larger studies have shown no effect.

HCQ trutherism offers an explanation for tragedy beyond the random cruelty of nature. Just as anti-vaxxers don't want to believe that sometimes autism just happens, HCQ Truthers don't want to believe that sometimes nature just releases awful epidemics on us. It's more comforting, in some ways, to think that bad happenings are all part of a plan by shadowy forces.

There is, however, another crazy side that doesn't get as much attention because their crazy is a bit more subtle. These are the people who have decided that, since Trump is touting the HCQ treatment, it must not work. It can not work. It can not be allowed to work. There is an undisguised glee when studies show that HCQ does not work and a willingness to blame HCQ shortages on Trump and only Trump.[efn_note]Not to mention the odd fish tank cleaner poisoning that has nothing to do with him.[/efn_note]

In between the two camps are everyone else: scientists, doctors and ordinary folk who just want to know whether this thing works or not, politics and conspiracy theories be damned. Well, last week, we got a big indication that it does not. A massive study out of the Lancet concluded that the HCQ regimen has no measurable positive effect. In fact, death rates were higher for those who took the regimen, likely due to heart arrhythmias induced by the drug.

So is the debate over? Can we move on from HCQ? Not quite.

First of all, the study is a retrospective study, looking backward at nearly 100,000 cases over the last four months. That's a massive sample that allows one to correct for potential confounding factors. But it's not a double-blind trial, so there may be certain biases that can not be avoided. In response to the publication, a group doing a controlled study unblinded some of their data (that is, they let an independent group look up who was getting the actual HCQ and who was getting a placebo). It did not show enough of a safety concern to warrant ending the study.

It's also worth noting that because this is an unproven therapy, it is usually being used on only the sickest patients (the odd President of the United States aside). It's possible earlier use of the drug, when the body is not already at war with itself, could help.

With those caveats in mind, however, this study at least makes it clear that HCQ is not the miracle cure some fringe corners of the internet are pretending it is. And it should make doctors hesitant in giving to people who already have heart issues.

As you can imagine, this has only fed the twin camps of derangement. The truther arguments tend to fall into the usual holes that truther theories do:

"How can this be a four-month study when we only learned about COVID in January!" The HCQ protocol started being used almost immediately because of previous research on coronaviruses.

"How come all of the sudden this safe medicine that people use all the time is dangerous?!" The side effects of HCQ have been well known for years and have always required consideration and management. They may be showing up more strongly here because it is being given to patients whose bodies are already under extreme stress. Also, azithromycin may amplify some of those side effects.

"They just hate Trump." Not everything is about Donald Trump. If it turned out that kissing Donald Trump's giant orange backside cured COVID, scientists would be the first ones telling people to line up and use chapstick.

The other camp's response has ranged from undisguised glee -- that is, joy at the idea that we won't be saving lives cheaply -- to bizarre claims that Trump should be charged with crimes for touting this unproven therapy.

(A perfect illustration of the dementia: former FDA Head Scott Gottlieb -- who has been a Godsend for objective analysis during the pandemic -- tweeted out the results of the RECOVERY unblinding yesterday morning and noted that it showed no increased safety risk. He was immediately dogpiled by one side insisting he was trying to conceal the miracle cure of HCQ and the other insisting he is a Trumpist doing the Orange Man's dirty work.)

In the end, the lunatics do not matter. Whether HCQ works or not, whether it is used or not, will be mostly determined by doctors and will mostly be based on the evidence we have in front of us. If HCQ fails -- and it's not looking good -- my only response will be massive disappointment. Had HCQ worked, it would have been a gift from the heavens. It is a well-known, well-studied drug that can be manufactured cheaply in bulk. Had it worked, we could have saved thousands of lives, prevented hundreds of thousands of long-term injuries and saved trillions of dollars. That it doesn't appear to work -- certainly not miraculously -- is not entirely unexpected but is also a tragedy.

{C1} The Christian Science Monitor looks at 1918 and how sports handled that pandemic, and the role it played in giving rise to college football.

"That's really what started the big boom of college football in the 1920s," said Jeremy Swick, historian at the College Football Hall of Fame. "People were ready. They were back from war. They wanted to play football again. There weren't as many restrictions about going out. You could enroll back in school pretty easily. You see a great level of talent come back into the atmosphere. There's new money. It started to get to the roar of the Roaring '20s and that's when you see the stadiums arm race. Who can build the biggest and baddest stadium?"

{C2} During times of rapid change, social science is supposed to be able to help lead the way or at least decipher what is going on. Or maybe not...

But while Willer, Van Bavel, and their colleagues were putting together their paper, another team of researchers put together their own, entirely opposite, call to arms: a plea, in the face of an avalanche of behavioral science research on COVID-19, for psychology researchers to have some humility. This paper—currently published online in draft format and seeding avid debates on social media—argues that much of psychological research is nowhere near the point of being ready to help in a crisis. Instead, it sketches out an “evidence readiness” framework to help people determine when the field will be.

{C3} There is a related story about AI - which is predisposed towards tracking slow change over time - is having trouble keeping up.

{C4} The Covid-19 does not bode well for higher education is not news. They may have a lot of difficulty opening up (and maybe shouldn't). An added wrinkle is kids taking a gap year, which is potentially a problem because those most able to pay may be least likely to attend.

{C5} People who can see the faults with abstinence only education fail to see how that logic (We shouldn't give guidance to people doing things we would rather they not do in the first place). Emily Oster argues that the extreme message of public health advocates to Just Stay Home is counterproductive.

When people are advised that one very difficult behavior is safe, and (implicitly or not) that everything else is risky, they may crack under the pressure, or throw up their hands. That is, if people think all activities (other than staying home) are equally risky, they figure they might as well do those that are more fun. If taking a walk at a six-foot distance from a friend puts me at very high risk, why not just have that friend and a bunch of others over for a barbecue? It’s more fun. This is an exaggeration, of course, but different activities carry very different risks, and conscientious civic leaders should actively help people choose among them.

{C6} A look at what canceling the football season will do to the little guys - non-power schools. Ironically, they may sustain less damage due to fewer financial obligations relying on the money that won't be coming in. Be that as it may, Fordham has disestablished its baseball program.

{C7} Bans on evictions and rental spikes could have the main effect of simply pushing out small investors, rather than protecting renters. In a more good-faith economy this would be less of an issue because landlords would work with tenants. Which some are, though I don't have too much faith about it being widespread.

{C8} Three cheers for Nick Saban. Football coaches are cultural leaders of a sort. One is about to become a senator in Alabama, even. What they do matters.

The American college experience for better or for worse revolves around the residency factor. We have turned college into a relatively safe place for young adults to the test the limits of freedom without suffering too many consequences. Better to miss a day of classes because you drank too much than to miss a day of an apprenticeship or job and get fired. College was cut short this semester because of COVID and colleges are freaking out about whether they can open up dorms in the fall. The dorms are big money makers and it is hard to justify huge tuition bucks for zoom lectures even for elite universities. Maybe especially for them. California State University announced that Fall 2020 is going to be largely online. My undergrad alma mater sent out an e-mail blast announcing their plan to reopen in the fall with "mostly" in person classes. The President admitted that the plan was a work in progress but it strikes me as a combination of common sense and extreme wishful thinking. The plan may include:

1. Staggered drop-off days to limit density as we return.

This sounds reasonable but only in a temporary way because eventually everyone will be back on campus, living in dorm rooms together, needing to use communal bathrooms and showers.

2. Students would be tested for COVID-19 on campus at least twice in the first 14 days.

There is nothing wrong with this as long as the testing is available. Our capacity for testing so far in this country has not been great.

3. Anyone experiencing symptoms would be tested immediately. Students who test positive would be cared for in a separate dormitory area where food would be brought to the room and where the student could still access classes remotely.

Nothing wrong here. Outbreaks of certain diseases are not unknown in the college setting. During my senior year, there was an outbreak of a rather nasty strain of gastroenteritis. Other universities have experienced meningitis outbreaks.

4. All students would take their temperature and report symptoms daily.

This one is also reasonable but is going to involve spying on students and coming up with a punishment mechanism. How will they make sure students are not lying?

5. We would also require that socializing be kept to a minimum in the beginning, with proper PPE (masks) and social distancing. As time went on, we would seek to open up more, and students could socialize and eat together in small groups.

I have no idea how they tend for this to happen and it sets of all my lawyer bells for carefully crafted language that attempts to answer a concern or question but also admits "we got nothing." Maybe today's students are more somber and sincere but you are going to have around 500 eighteen year olds who are away from their parents for the first time and another 1500 nineteen to twenty-one year olds who had their semester rudely interrupted and might now be reunited with boyfriends and girlfriends. Are they going to assign eating times for the dining hall and put up solo eating cubicles that get wiped down and disinfected after each use? Assign times to use laundry facilities in each dorm? Cancel the clubs? Cancel performances by the theatre, dance, and music departments?

I am sympathetic to my alma I love it but and realize that a lot of colleges and universities would take a real hit financially without residency. This includes universities with reasonable to very large endowments. Only the ones with hedge fund size endowments would not suffer but the last part of the plain sounds not fully thought out yet even if my college's current President admitted: "Life on campus will not look the same as it did pre-pandemic" The only way i see number 5 working is if requiring is read as "requiring."

Seems that the theory that Covid-19 can be spread by asymptomatic people has very shaky evidence in support of it. Turns out the case this assumption was made from was based on a single woman who infected 4 others. Researchers talked to the 4 patients, and they all said the patient 0 did not appear ill, but they could not speak to patient 0 at the time.

So they finally got to talk to her, and she said she was feeling ill, but powered through with the aid of modern pharmaceuticals.

Ten Second News

Today we couldn’t be happier to announce that Vox Media and New York Media are merging to create the leading independent modern media company. Our combined business will be called Vox Media and will serve hundreds of millions of audience members wherever they prefer to enjoy our work.

In a nation in turmoil, it's nice to have even a small bit of good news:

Representative Steve King of Iowa, the nine-term Republican with a history of racist comments who only recently became a party pariah, lost his bid for renomination early Wednesday, one of the biggest defeats of the 2020 primary season in any state.

In a five-way primary, Mr. King was defeated by Randy Feenstra, a state senator, who had the backing of mainstream state and national Republicans who found Mr. King an embarrassment and, crucially, a threat to a safe Republican seat if he were on the ballot in November.

The defeat was most likely the final political blow to one of the nation’s most divisive elected officials, whose insults of undocumented immigrants foretold the messaging of President Trump, and whose flirtations with extremism led him far from rural Iowa, to meetings with anti-Muslim crusaders in Europe and an endorsement of a Toronto mayoral candidate with neo-Nazi ties.

King, you may remember, was stripped of his committee assignments last year when he defended white supremacism. Two years ago, he almost lost his Congressional seat in the general. That is, a seat that Republicans have held since 1986, usually win by double digits and a district Trump carried by a whopping 27 points almost came within a point or two of voting in a Democrat. That's how repulsive King had gotten.

Good riddance to bad rubbish. Enjoy retirement, Congressman. Oops. Sorry. In January, it will be former Congressman.

Comment →

From the Daily Mail: Deadliest city in America plans to disband its entire police force and fire 270 cops to deal with budget crunch

The deadliest city in America is disbanding its entire police force and firing 270 cops in an effort to deal with a massive budget crunch.

...

The police union says the force, which will not be unionized, is simply a union-busting move that is meant to get out of contracts with current employees. Any city officers that are hired to the county force will lose the benefits they had on the unionized force.

Oak Park police say they are investigating “suspicious circumstances” after two attorneys — including one who served as a hearing officer in several high-profile Chicago police misconduct cases — were found dead in their home in the western suburb Monday night.

Officers were called about 7:30 p.m. for a well-being check inside a home in the 500 block of Fair Oaks Avenue, near Chicago Avenue, and found the couple dead inside, Oak Park spokesman David Powers said in an emailed statement. Authorities later identified them as Thomas E. Johnson, 69, and Leslie Ann Jones, 67, husband and wife attorneys who worked in Chicago.

The preliminary report from an independent autopsy ordered by George Floyd's family says the 46 year old man's death was "caused by asphyxia due to neck and back compression that led to a lack of blood flow to the brain".

The independent examiners found that weight on the back, handcuffs and positioning were contributory factors because they impaired the ability of Floyd's diaphragm to function, according to the report.

Dr. Michael Baden and the University of Michigan Medical School's director of autopsy and forensic services, Dr. Allecia Wilson, handled the examination, according to family attorney Ben Crump.

Baden, who was New York's medical examiner in 1978 and 1979, had previously performed independent autopsies on Eric Garner, who was killed by a police officer in Staten Island, New York, in 2014 and Michael Brown, who was shot by officers in Ferguson, Missouri, that same year.

Featured Comment

Oddly, the video was dropped by an attorney friend the men, because he thought it would exonerate them. He assumed when people saw Aubrey turn and try to defend himself, everyone would see what they did: a dangerous animal needing to be put down.